CRA finds that a developer was not entitled to a rebate of its HST costs where it subleased its developed housing lots to a home builder for construction and sale

DeveloperCo which holds land under a 99-year headlease, pays the fees of a third-party contractor (Contractor) to develop the land as housing lots, and subleases the lots to Builder who constructs houses thereon, which are sold to the third party buyers through a sale to them of the subleases. (Polygon, which CRA accepts, effectively found that these sales are taxable, rather than the builder being subject to the self-supply rule under s. 191).

CRA found that because the subleases by DeveloperCo to Builder were exempted under Sched. V, Pt. I, s. 7 rather than s. 6.1 or 6.11, DeveloperCo was not entitled to a rebate under s. 256.1 for the HST charged to it on the development costs borne by it – notwithstanding that the transactions generated fully-taxable revenues from the sublease purchasers. CRA recognized that this result was anomalous, but did not think that the provisions offered up a solution.

Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.22 under ETA s. 256.1(1).